U.S. Judge Authorizes Seizure of Venezuela’s CITGO

U.S. Judge Authorizes Seizure of Venezuela’s CITGO

To the surprise of many in our industry, it was announced today that a US Federal Judge Leonard P. Stark of the U.S. District Court in Wilmington, Delaware, authorized the seizure of Houston-based CITGO Petroleum Corporation.

The order was issued to satisfy a Venezuelan government debt. Adding to this, the U.S. State Department ordered that Asdrúbal Chávez, who headed CITGO, surrender his U.S. visa. It is speculated that this could result in Petroleos de Venezuela, S.A. (PDVSA) losing control of CITGO.

CITGO is one of PDVSA’s largest foreign assets, and with CITGO’s three refineries in the U.S., the Venezuelan government is the largest foreign owner of domestic refinery capacity. CITGO’s refineries account for close to 4% of U.S. fuel capacity, including gasoline, diesel, and jet fuel. In addition, although its lubricant sales volume in the U.S. has waned over the years from close to 150 million gallons at its peak at the turn of the millennium, it remains a major player in the lubricants business.

It will be interesting to see how this plays out. Whereas some in our industry feel it could have a negative impact on CITGO’s lubricant sales by reminding buyers about its connection to Venezuela and bring back memories of President Hugo Chávez’s infamous “the Devil” speech before the United Nations General Assembly in 2006, others speculate that a severance of ties to Venezuela, should it occur, could bolster CITGO’s lubricant sales.

North Carolina Issues a Stop-Sale Order On “303” Tractor Hydraulic Fluid

As reported by the Petroleum Quality Institute of America on Wednesday of this week, the North Carolina Department of Agriculture and Consumer Services (NCDA&CS) issued a stop-sale order for tractor hydraulic fluid (THF) products labeled, claimed or implied as meeting THF 303, which has no known specifications available.

The NCDA&CS order requires that, manufacturers and distributors will have six months to remove these products from retail locations. These products may be relabeled to either remove the J303 specification or include a more recent John Deere specification it does meet. Online sales shall include a note that these products are not legal in North Carolina. CLICK FOR MORE

Warren Distribution in Midst of $10 Million Investment to Enhance Packaging Capabilities

Rather than speculating on why these large investments are made, JobbersWorld went right to the source for answers.

Warren Distribution has recently made some major investments to enhance its packaging offering and capacity. This year alone, it implemented investments totaling $10 Million that impact all three of its packaging plants. The projects include:

Increasing capability and flexibility across all high-speed quart filling lines to accommodate wide-mouth bottles/caps, as well as pressure-sensitive labels. Conversion of lines are completed in Alabama and Iowa; the West Virginia conversion is in progress and will be completed by the end of Q3.

Substantially increasing quart blow-molding capacity by going to dual-parison mold on wheel blow molder in West Virginia. New capacity will be in place by Q4 of this year.

Almost doubling company-wide multi-quart bottle (gallon and 5-quart) blow-molding capacity with purchase of new blow molder in Iowa. New capacity will be in place by Q2 2019.

These investments by Warren Distribution are in addition to those recently reported by JobbersWorld, including the new blend plant in Houston and warehouse expansion in Iowa. Following JobbersWorld’s story about these investments, we fielded a number of questions from readers asking, why a blender would invest so heavily in an industry where demand has been relatively flat. Rather than speculating, JobbersWorld went right to the source for answers and here is what Warren Distribution was willing to share from our discussions.

The first important take away, and a large part of the reason for Warren Distribution’s investments, speaks to changes in the marketplace.

“While the pace of change in the lubricants industry is not nearly as fast as that seen in consumer electronics, retail, food service, and others, significant changes have and continue to occur in the lubricants business that requires some hand-wringing strategic decisions by key players,” says Curt Knapp, Warren Distribution’s Chief Operating Officer. These decisions are typically based on thoughtful and thorough analysis of both cyclical and systemic market dynamics. And in today’s environment, they include the fact that although cyclical changes in the economy (i.e. the current booming economy) has spurred demand, the systemic reality is that the demand for lubricants in the North American market is generally considered to be on a path of low-to-declining growth in volume.

Another important consideration for those in the automotive lubricants segment is that over the past two decades, the Do-It-Yourself (DIY) class of trade has steadily declined as an increasing number of consumers drove their cars to Do-It-For-Me (DIFM) outlets for service. Adding to this, Knapp says, “As the consumers shifted away from DIY, retailers’ private-label lubricants have grabbed substantial market share at the expense of the major brands. The result has been robust growth in demand volume for retailer brands. And in their pitched battle to continue to grab Majors’ market share, retailers are demanding packaging with a premium appearance to help close the gap in perceived quality. Similarly, even in the DIFM market, automotive wholesalers are selling much more of their private label packaged lubricants into the automotive service market, displacing Majors’ brands.”

While these and other changes taking place favor suppliers that invest in their business, the decision to do so requires a high level of strategic planning and recognition that changes typically bring a new set of challenges that must be anticipated, and when possible, proactively addressed. To this point, Bob Schlott, Warren Distribution’s owner and CEO, says, “Decisions to make these large investments are not easy, especially in a market that has seen margins contract.” But, Schlott adds, “Our decision to make the investments was ultimately driven by our commitment to continue to provide a high level of service for our customers as we try to keep ahead of the growth we are enjoying, plus we need to satisfy changing market demands, because we are in this for the long-haul.”

“Doing all of these projects in a short time frame while servicing a large and growing business has been a massive, once-in-a-lifetime challenge,” said Curt Knapp, and… “Although we make every effort to anticipate and address the challenges driven by change, we also understand how change can be challenging for our customers, and appreciate their understanding and support as we work through the process.” But at the end of the day, Knapp adds, “We are confident the investments we have and continue to make in the business will further strengthen Warren Distribution’s position in the market and put us in a better position to serve its customers for the long-term.”

Editor’s Note: JobbersWorld’s discussions with Warren Distribution reminded us of a quote made famous by Jamie Dimon, President and CEO of JPMorgan Chase, when he said, “Companies that grow for the sake of growth or that expand into areas outside their core business strategy often stumble. On the other hand, companies that build scale for the benefit of their customers and shareholders more often succeed over time.” Based on the growth Warren Distribution has enjoyed over the years, it was clear from our discussions with Warren Distribution that the fundamentals of its investments are based on pursuit of the latter.

About Warren Distribution:Warren Distribution is a family-owned business that was founded over 97 years ago in 1922 by the grandfather of Robert Schlott, the current Chairman and CEO. Now, it’s the largest private label blender and one of the largest independent motor oil, lubricants and automotive chemicals manufacturers and suppliers in North America. The Company is the private label supplier for some of the largest retailers, marketers and lubricants distributors in North America and has customers in more than 30 countries. It has the capacity to produce 100 million gallons of bulk and packaged lubricants from more than 1,100,000 square feet manufacturing and distribution facilities in Iowa, West Virginia, Alabama and Texas. The headquarters office is in Omaha, NE.